Games Parents and Adolescents Play: Risky Behaviors, Parental Reputation and Strategic Transfers

V. Joseph Hotz, Lingxin Hao and Ginger Jin , The Economic Journal 118(528) , 515-555 , April 2008.

This paper examines reputation formation in intra-familial interactions. We consider parental reputation in a repeated two-stage game in which adolescent children decide whether to drop out of high school or adolescent daughters have births as teens and, given adolescent decisions, the parent decides whether to provide or withhold support to their children beyond age 18. Drawing on the work of Milgrom and Roberts (1982) and Kreps and Wilson (1982), we show that parents have, under certain conditions, the incentive to penalize older children for their adolescent risk-taking behaviors in order to dissuade their younger children from such behaviors when reaching adolescence. The model generates two empirical implications: the likelihood of a child engaging in risky behaviors as a teen and the likelihood of the parent providing support to an adult child who engaged in such behaviors as a teen will be lower the greater the number of remaining younger children in the family. We test these two implications, using data from the National Longitudinal Survey of Youth, 1979 Cohort (NLSY79). Exploiting the availability of repeated observations on individual respondents and of observations on multiple siblings, we find evidence in favor of both predictions. 

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